Opinion of Advocate General Kokott, 22 January Case C-686/13. X AB v Skatteverket. I Introduction

Transcription

1 Opinion of Advocate General Kokott, 22 January Case C-686/13 X AB v Skatteverket I Introduction 1. The Swedish tax dispute which has given rise to the present request for a preliminary ruling has its origin in the fact that, in the Kingdom of Sweden, capital gains and capital losses from the disposal of certain shareholdings are not taken into account for income tax purposes. While beneficial to some companies, that scheme is unfavourable to those facing a loss. However, where such a loss is the result of an exchange rate risk, and that risk arises primarily in the context of cross-border activities, the fundamental freedoms could require the loss to be taken into account. It is this issue which the referring court wishes to dispose of before the applicant in the main proceedings terminates the activities of its subsidiary, which is resident in another Member State. 2. The Court previously considered a similar situation in Deutsche Shell, which concerned a currency loss incurred in connection with the closure of a foreign establishment. On that occasion, the Court held that there had been an infringement of the freedom of establishment. 2 In the present case, it must now be analysed to what extent the findings of the judgment in Deutsche Shell may be transposed to currency losses incurred in connection with the cessation of the activities of a subsidiary. II Legal framework 3. The Kingdom of Sweden levies income tax. In principle, that tax is also charged on income from the disposal of shares in public limited companies. 4. An exception is, however, provided for in the case of shares held by certain companies, in particular public limited companies, for business purposes. In accordance with Chapter 25a, Paragraph 5(1) of the Swedish Law on income tax (inkomstskattelag 1999:1229), a capital gain realised on the disposal of such shares is, in principle, not to be taken into account. On the other hand, in accordance with subparagraph 2 of that provision, a capital loss on disposal is deductible only if a corresponding capital gain would have been taxable. 5. In accordance with Chapter 24, Paragraph 14(1) of the Swedish Law on income tax, capital gains and capital losses on disposal are not to be taken into account for tax purposes, provided that the shareholding satisfies one of the following conditions: 1. The holding must not be listed. 2. The total number of voting rights attached to all the shares held by the company owning the shares in the company owned corresponds to at least 10 per cent of the total number of voting rights attached to all the shares in that company. 3. The share is held for the purpose of the activities of the holding company or by an undertaking which, having regard to the conditions of ownership or of organisation, can be regarded as being close to that company. 6. Similar provisions apply to dividends on such shares, which are also, in principle, excluded from taxation. The scheme whereby dividends and profits on the disposal of assets are not taken into account for tax purposes is intended to avoid the multiple taxation of company profits. III The dispute in the main proceedings 7. The dispute in the main proceedings concerns the request by the Swedish company X AB for a preliminary decision in the context of the taxation of its income. 8. In 2003, X had formed a British subsidiary. The shares were issued in US dollars. From 2003 to 2009, X increased its capital holding in the subsidiary on a number of occasions. 9. Furthermore, following its formation, X disposed of shares in its subsidiary to its own parent company, with the result that X now holds only 45% of those shares. 10. X is planning in a manner undisclosed to terminate the activities of its British subsidiary, and it would appear that, under Swedish law, that cessation of activities is treated as the disposal of the shareholding in the subsidiary. On account of the change in the exchange rate between the Swedish krona and the US dollar which has since taken place, it expects the cessation of activities to lead to a currency loss. Under the Swedish provisions governing capital losses on the disposal of shares held for business purposes, it would be unable to claim such a loss against tax. 1. Original language: German. 2. Judgment in Deutsche Shell (C-293/06, EU:C:2008:129).

2 11. Against that background, X requested a preliminary decision from the Skatterättsnämnden (Revenue Law Commission) with a view to ascertaining whether the refusal to take a currency loss into account for tax purposes is an infringement of EU law. After the Skatterättsnämnden had answered that question in the negative, X instituted legal proceedings. AG IV Procedure before the Court of Justice 12. On 27 December 2013, the Högsta förvaltningsdomstol (Supreme Administrative Court), before which the dispute is now pending, referred the following question to the Court of Justice pursuant to Article 267 TFEU: Do Article 49 TFEU and Article 63 TFEU preclude national legislation under which the State of residence does not grant a deduction for a currency loss incorporated into a capital loss on the disposal of a holding for business purposes in a company resident in another Member State, where the Member State of residence applies a system that does not take into account the capital gains and capital losses on the disposal of such holdings in the calculation of the basis of assessment for tax? 13. The parties to the main proceedings, the Kingdom of Denmark, the Federal Republic of Germany, the Kingdom of Spain, the French Republic, the Italian Republic, the Kingdom of the Netherlands, the Portuguese Republic, the Republic of Finland, the Kingdom of Sweden, the United Kingdom of Great Britain and Northern Ireland and the European Commission submitted written observations to the Court of Justice in March and April V Legal assessment 14. By its question, the referring court wishes to ascertain whether a Member State may leave capital gains and losses arising on the disposal of shares in companies out of account when levying income tax without thereby infringing the freedom of establishment or the free movement of capital. The referring court considers such an infringement to be possible because, under the national legislation, currency losses are also not taken into account for tax purposes. 15. Before answering this question, it must be emphasised that it is for the national court to determine whether and to what extent a currency loss is actually capable of being sustained by company X. 3 The information in the order for reference does not in itself make clear whether a currency loss has occurred. The mere fact that a share is issued in a foreign currency does not necessarily mean that there is a possibility of a currency loss being sustained if the activity is terminated. The only conceivable situation in which such a loss would be a definite possibility would be if shareholder X, on the cessation of the activities of its subsidiary, had a claim only to payment of the nominal capital in foreign currency. However, if, in that event, there were a claim to the subsidiary s assets, it would probably not be easy to identify a distinct currency loss, even if the assets were disposed of in a foreign currency in the course of the company s being wound up. The interplay between the level of prices in the economies concerned and the rate of exchange between their currencies would probably make it difficult to distinguish between real changes in the value of the assets and mere currency fluctuations. 16. In the remainder of this Opinion, I shall therefore as the Court of Justice did in the judgment in Deutsche Shell 4 assume, for the purpose of answering the question referred, that a distinct currency loss can be identified in connection with the cessation of the subsidiary s activities in the present case. A The fundamental freedom applicable 17. The first question that arises is whether legislation such as that in Sweden should be measured against the criterion of the freedom of establishment provided for in Article 49 TFEU or the free movement of capital provided for in Article 63(1) TFEU. In principle, in the present case of participation in a company resident in another Member State, both freedoms may be involved. 18. To that end, it is necessary first of all to examine the subject-matter of the national legislation. According to the case-law, national legislation intended to apply only to those shareholdings which enable the holder to exert a definite influence on a company s decisions and to determine its activities falls within the scope of Article 49 TFEU alone. On the other hand, national provisions which apply to shareholdings acquired solely with the intention of making a financial investment without any intention to influence the management and control of the undertaking must be examined exclusively in light of the free movement of capital In accordance with Chapter 24, Paragraph 14(1) of the Swedish Law on income tax, the Swedish provision is applicable, inter alia, to unlisted shares irrespective of the level of the shareholding. Consequently, its application is not exclusively confined either to shareholdings which enable the holder to exert a definite influence on a company s decisions or to shareholdings acquired solely with the intention of making a financial investment. 20. In such circumstances, account must be taken of the facts of the particular case in order to determine whether the situation giving rise to the dispute in the main proceedings falls within the scope of Article 49 TFEU or Article 63(1) TFEU. 6 The freedom of establishment is more specific in this regard, since, in accordance with the second paragraph of Article 49 TFEU, it concerns only shareholdings that make it possible to set up and manage a company. 3. Cf. also judgment in Deutsche Shell (C-293/06, EU:C:2008:129, paragraph 25). 4. Cf. judgment in Deutsche Shell (C-293/06, EU:C:2008:129, paragraph 27). 5. See, for example, judgment in Kronos International (C-47/12, EU:C:2014:2200, paragraphs 30 to 32 and the case-law cited).

3 21. In the present case, X was initially the sole shareholder of its British subsidiary. As far as the setting up of the subsidiary is concerned, X therefore falls squarely within the scope of the freedom of establishment. 22. However, the present proceedings are concerned with the refusal to take into account for tax purposes a currency loss resulting from the cessation of the subsidiary s activities. By now, X has already reduced its shareholding in the subsidiary to 45%. The fact that it has ceased to hold the majority of the shares might raise the question whether X is now no longer able to exert a definite influence on the subsidiary s decisions and to determine its activities, in which event X would no longer be protected by the freedom of establishment. 23. I nevertheless consider the freedom primarily applicable in this case to be the freedom of establishment. First, the very prospect that closing the business will give rise to disadvantages is enough to act as a deterrent to the formation of a subsidiary, in which connection X was in any event within the scope of the freedom of establishment. Secondly, the Court of Justice does not necessarily make the applicability of the freedom of establishment subject to the existence of a majority shareholding. Thus, in one case, it readily considered a shareholding of 34% to be sufficient for the purposes of the exercise of a definite influence. 7 In another case, it even held, in the particular circumstances of the matter, a shareholding of little more than 25% to be sufficient In the final analysis, therefore, the present case calls for an examination of an infringement of the freedom of establishment provided for in Article 49 TFEU, which, for reasons of speciality, displaces the application of the provisions concerning the free movement of capital provided for in Article 63(1) TFEU. B Restriction of the freedom of establishment 25. The question, therefore, is whether the freedom of establishment under Article 49 TFEU is infringed by the fact that certain Swedish companies, when incurring capital losses on the disposal of certain shares in a company resident in another Member State, cannot claim allowance for a currency loss arising in connection with that disposal in the context of the taxation of their income. 26. In accordance with Article 54 TFEU, companies too benefit from the freedom of establishment within the European Union. The second paragraph of Article 49 TFEU prohibits in particular restrictions on the setting up and management of subsidiaries in another Member State. In this regard, it is settled case-law that the freedom of establishment prohibits not only the host State but also the State of origin from hindering the establishment of a company in another Member State Sweden, as the State of origin, could therefore hinder a company such as X, which is subject to its income tax, in the context of setting up or managing a subsidiary in another Member State by denying it an allowance against tax for a currency loss incurred in connection with the cessation of the subsidiary s activities. 28. It is settled case-law that all measures which prohibit, impede or render less attractive the exercise of the freedom of establishment must be regarded as restrictions on that freedom. 10 The Court of Justice regularly finds that the legislation of the Member State of origin constitutes a restriction where cross-border establishment is placed at a disadvantage by comparison with domestic establishment. 11 A restriction of the freedom of establishment by the Member State of origin is therefore present where cross-border establishment is discriminated against by comparison with domestic establishment. Such discrimination may be overt (see section 1 below) or covert (see section 2 below). The further question of whether, in the present case, the freedom of establishment may even be infringed by a non-discriminatory restriction on the part of the Member State of origin will be considered in section Overt discrimination 29. There is no evidence of any overt discrimination against cross-border establishment in the present case. After all, the Swedish legislation, which does not take into account for tax purposes either capital gains or capital losses from the disposal of shareholdings, applies irrespective of whether the shares in question are shares in a domestic company or a foreign company. There is therefore, in principle, no difference in the tax treatment of domestic and foreign establishment involving a subsidiary. 6. Cf. judgments in Test Claimants in the FII Group Litigation (C-35/11, EU:C:2012:707, paragraphs 93 and 94), Beker and Beker (C-168/11, EU:C:2013:117, paragraphs 27 and 28), Bouanich (C-375/12, EU:C:2014:138, paragraphs 29 and 30), and Kronos International (C-47/12, EU:C:2014:2200, paragraphs 36 and 37). 7. Cf. judgment in SGI (C-311/08, EU:C:2010:26, paragraphs 34 and 35). 8. Cf. judgment in Scheunemann (C-31/11, EU:C:2012:481, paragraphs 25 to 30). 9. Cf., inter alia, judgments in Daily Mail and General Trust (81/97, EU:C:1988:456, paragraph 16), National Grid Indus (C-371/10, EU:C:2011:785, paragraph 35) and Nordea Bank Danmark (C-48/13, EU:C:2014:2087, paragraph 18). 10. See, for example, judgment in National Grid Indus (C-371/10, EU:C:2011:785, paragraph 36 and the case-law cited). 11. Cf., for example, judgments in AMID (C-141/99, EU:C:2000:696, paragraph 27), Marks & Spencer (C-446/03, EU:C:2005:763, paragraphs 32 to 34), Papillon (C-418/07, EU:C:2008:659, paragraphs 21 and 22), National Grid Indus (C-371/10, EU:C:2011:785, paragraph 37), DI VI Finanziaria SAPA di Diego della Valle (C-380/11, EU:C:2012:552, paragraphs 34 to 36) and Nordea Bank Danmark (C-48/13, EU:C:2014:2087, paragraph 19).

4 2. Covert discrimination 30. It is, however, settled case-law that the rules regarding equal treatment prohibit not only overt discrimination by reason of nationality or the location of a company s registered office, but also all covert forms of discrimination which, by the application of other criteria of differentiation, lead in fact to the same result. 12 The expression rules regarding equal treatment refers in particular to the fundamental freedoms, in so far as they entail a requirement of treatment equal to that afforded to nationals, such as the freedom of establishment in the second paragraph of Article 49 TFEU. 31. It is true that that case-law is primarily concerned only with the obligations of the host State. The reason for this is that, as a rule, the State of origin does not hinder a fundamental freedom by imposing different rules on different nationals, but by laying down rules which are the same for all persons resident or established there but which distinguish between the treatment of cross-border and domestic activities. In this regard, however, the fundamental freedoms require the State of origin too to afford equal treatment. Furthermore, in the same way as acts of discrimination perpetrated by the host State on grounds of nationality or the location of a company s registered office, a covert form of discrimination by the State of origin against cross-border activities may also hinder the exercise of the fundamental freedom. The aforementioned principle established by case-law must therefore also be applied mutatis mutandis when examining a restriction of the freedom of establishment by the State of origin. 32. It must therefore be examined whether the fact that capital gains and losses on the disposal of shareholdings are not taken into account for tax purposes covertly places against taxpayers with shares in a company resident in another Member State at a disadvantage as compared with taxpayers with shares in a domestic company. 33. In accordance with the Court s definition of covert discrimination on grounds of nationality, 13 such covert discrimination must be taken to exist if the Swedish legislation is in most cases disadvantageous to taxpayers who dispose of shares in a company resident in another Member State. 34. There are two possible approaches to answering that question. On the one hand, one might proceed on the premise that currency losses are perhaps it would in any event be for the referring court to make the final determination in this regard 14 more apt to be incurred on shares in a company established in another Member State. It is common ground that an exchange rate risk may attach to the value of domestic shareholdings too, not only where the investment is denominated in foreign currency but also where the domestic company has itself invested in foreign currencies. None the less, it may well be the value of a foreign company s shares that is more apt to be affected by foreign currency values because a foreign company might invest in assets denominated in foreign currency more frequently than a domestic company would. 35. On the other hand, such a position would have absolutely no regard for the fact that the Swedish legislation at issue here leaves out of account for tax purposes not only losses from the disposal of shares but also gains. In consequence, currency fluctuations affecting the value of a shareholding, whether they give rise to losses or to gains, are not taken into account for tax purposes. Accordingly, covert discrimination against the cross-border establishment could be assumed to exist only if, on account of the exchange rate risk, foreign shareholdings were, by and large, considerably more loss-incurring than domestic shareholdings. 36. I can see no evidence of this, however. It is true that it is ultimately for the referring court to examine, on the basis of the factual circumstances obtaining in the Kingdom of Sweden, whether, from this point of view, the Swedish legislation is to be regarded as constituting covert discrimination against foreign establishment. In so doing, the referring court in the present case would also have to take into account the particularity that X s shares in its United Kingdom subsidiary were not even issued in the currency of the host State, the pound sterling, but in a third currency, the US dollar. Such a course of action is not in itself sufficient to rule out the assumption of covert discrimination against cross-border activities, since that practice may be more common among cross-border establishments than among domestic ones. Be that as it may, it remains the case that there is nothing in the facts of the present proceedings to indicate that exchange rate risks occur more often than any of the other risks associated with economic activity to which both domestic and foreign companies are exposed. 37. It must therefore be concluded that there is nothing in the information before the Court to indicate that the Swedish legislation at issue constitutes covert discrimination against cross-border establishment. 3. Non-discriminatory restriction 38. It thus remains to be examined whether it might none the less be found that the freedom of establishment is restricted because the Swedish legislation hinders X s becoming established in another Member State even though that legislation does not overtly or covertly place X at a disadvantage by comparison with domestic establishment. 39. There may in principle be a restriction of the freedom of establishment by the host State even by way of legislation that applies without discrimination on grounds of nationality or the location of the company s registered office. 15 Furthermore, in accordance with the general definition, all measures which prohibit, impede or render less attractive the exercise of the freedom of establishment must be regarded as restrictions on that freedom See, inter alia, judgment in Hervis Sport- és Divatkereskedelmi (C-385/12, EU:C:2014:47, paragraph 30 and the case-law cited). 13. Cf. judgment in Hervis Sport- és Divatkereskedelmi (C-385/12, EU:C:2014:47). 14. Cf. judgment in Hervis Sport- és Divatkereskedelmi (C-385/12, EU:C:2014:47, paragraph 40). 15. Cf., inter alia, judgments in Commission v Netherlands (C-299/02, EU:C:2004:620, paragraph 15), Blanco Pérez and Chao Gómez (C-570/07 and C-571/07, EU:C:2010:300, paragraph 53) and Venturini (C-159/12 to C-161/12, EU:C:2013:791, paragraph 30).

5 40. In the past, however, I have repeatedly expressed my doubts as to whether a non-discriminatory restriction of a fundamental freedom is possible in the field of tax law. 17 The levying of any tax hinders economic activity or makes it less attractive. If, however, a tax is capable of calling for review in the light of the fundamental freedoms of EU law even in cases where it is neither overtly nor covertly discriminatory and is as such levied on all EU citizens in the same way, then even the decision by a Member State to levy a tax in a particular situation and any increases in that tax would fall within the scope of EU law. This would effectively disregard the fiscal sovereignty which the Member States continue to exercise under the existing division of powers within the European Union. A tax that is levied without any discrimination at all cannot therefore, in principle, give rise to a restriction of a fundamental freedom. 41. This approach may, however, be called into question by the judgment in Deutsche Shell, which the parties to the present proceedings have also considered at length. In that judgment, the Court of Justice drawing on the Opinion of Advocate General Sharpston held that the fact that a currency loss is not taken into account for tax purposes constitutes a restriction of the freedom of establishment in the case where a company sets up a branch in a Member State where the currency used is different from that of the State of origin and a resultant currency loss on cessation of trading arises only in the State of origin. For, in those circumstances, the company carries a greater economic risk. 18 The Court did not, however, say that there was any associated discrimination. 42. However, Advocate General Sharpston based her proposed ruling on the fact that transactions between a parent company and its branch may carry an exchange rate risk only where the branch is located in another country. The conclusion was therefore drawn that there the cross-border situation was covertly placed at a disadvantage as compared with the domestic situation, and there was no non-discriminatory restriction. There is no such covert placing at a disadvantage in the present case. For, unlike in the case of transactions between parts of a company, the value of a domestic shareholding may also be exposed to an exchange rate risk Apart from that, I am not convinced by the fact that, in the judgment in Deutsche Shell, reliance is placed only on an exchange rate loss. If the fact that such a loss is not taken into account for tax purposes constitutes a restriction on the freedom of establishment, then, conversely (in the event that the Member State taxed exchange rate gains), the taxation of an exchange rate gain would also have to constitute a restriction. The paradoxical consequence of this would be that a Member State would restrict the freedom of establishment both by taxing such scenarios and by leaving them out of account for tax purposes. 44. After all, even if one were to accept that a non-discriminatory restriction of a fundamental freedom is possible in tax law, it still could not ultimately be accepted that there has been a restriction of the freedom of establishment in the present case. For, in such cases, the Court of Justice does not consider the freedom of establishment to be hindered by the host State where the legislation in question is applicable to all economic operators, its purpose is not to regulate the conditions concerning establishment and any restrictive effects which that legislation might have are too uncertain and indirect to be capable of hindering the exercise of the freedom of establishment. 20 The decisive criterion in this regard is, ultimately, whether non-discriminatory legislation is capable of seriously influencing an economic operator s investment decision. 21 If that case-law is also transposed to a hindrance to the exercise of the freedom of establishment by the State of origin, the fact that an exchange rate loss is not taken into account for tax purposes does not constitute a restriction on the freedom of establishment in the present case. At the time when the investment decision is made, the prospect of an exchange rate loss that would not be allowable against tax and the prospect of an exchange rate gain that would not be taxable are of course both present. Accordingly, the restrictive effects of the nondeductibility of any exchange rate loss arising in connection with the shareholding are too uncertain and too indirect to hinder the exercise of the freedom of establishment. 45. It must therefore be concluded that the freedom of establishment is not restricted by the Swedish legislation at issue here. C In the alternative: justification of a restriction of the freedom of establishment 46. In the event that the Court takes the view, contrary to my own, that the fact that an exchange rate loss is not taken into account for tax purposes constitutes a restriction of the freedom of establishment in the present case, it must next be examined whether that restriction might be justified by an overriding reason in the public interest. 47. The parties to the proceedings have put forward two such reasons: maintenance of fiscal coherence (see section 1 below) and preservation of the division of powers of taxation between the Member States (see section 2 below). 16. See point 28 above. 17. Cf. my Opinions in X (C-498/10, EU:C:2011:870, point 28) and Hervis Sport- és Divatkereskedelmi (C-385/12, EU:C:2013:531, points 83 and 84). 18. Judgment in Deutsche Shell (C-293/06, EU:C:2008:129, paragraph 30). 19. See above, point Cf. judgment in Semeraro Casa Uno and Others (C-418/93 to C-421/93, C-460/93 to C-462/93, C-464/93, C-9/94 to C-11/94, C-14/94, C-15/94, C-23/94, C-24/94 and C-332/94, EU:C:1996:242, paragraph 32); cf., on the freedom to provide services, judgment in Pelckmans Turnhout (C-483/12, EU:C:2014:304, paragraph 24) and, on the free movement of goods, judgment in DIP and Others (C-140/94 to C-142/94, EU:C:1995:330, paragraph 29 and the case-law cited). 21. Cf. my Opinion in Sky Italia (C-234/12, EU:C:2013:323, points 60 and 61).

6 1. Fiscal coherence 48. It is settled case-law that the need to preserve the coherence of a national tax system may justify a restriction on the exercise of the fundamental freedoms guaranteed by the Treaty. 22 On that basis, the Member States may prevent a taxable person from unilaterally claiming a tax advantage without at the same time submitting himself to a corresponding tax disadvantage. Direct link between advantage and disadvantage 49. That justification exists, however, only where there is a direct link between a tax advantage and the offsetting of that advantage by a particular tax levy. 23 In this regard, the direct nature of that link must be examined in the light of the objective pursued by the legislation in question In the present case, such a link might exist between the tax burden resulting from the fact that exchange rate losses from a disposal of shares are not taken into account and the tax advantage that lies in the fact that exchange rate gains are not taken into account either. 51. In the judgment in Deutsche Shell, the Court had still been of the view that there was no direct link between the taking into account for tax purposes of currency losses, on the one hand, and currency gains, on the other. The failure to take account of the currency loss suffered by the taxpayer concerned was not offset by any tax advantage for him In the later judgment in K, on the other hand, the Court saw matters differently. The dispute in K too concerned the taking into account for tax purposes of a loss resulting from the disposal of a foreign investment. In that case, however, the Court recognised the existence of a direct link between the taking into account of losses generated by a capital investment and the taxation of returns on that investment. 26 It pointed out in this regard that both the advantage and the disadvantage affected the same taxpayer, 27 even though the fact of not taking into account the loss on disposal suffered by the taxpayer could not for him personally given the one-off nature of the disposal be offset by a later tax advantage. 53. Those different decisions are based on a different approach to the advantage to which the tax burden is linked. While the judgment in Deutsche Shell is willing to accept the existence of an advantage only inasmuch as no account is taken for tax purposes of a capital gain actually accruing to the taxpayer, in the judgment in K, on the other hand, the Court considers to be sufficient the advantage represented by the fact that the taxpayer would not have had to pay tax on a gain if one had accrued. In other words, the judgment in Deutsche Shell looks at the taxpayer s situation ex post, whereas the judgment in K looks at it ex ante. Before commencing his investment in a Member State, the taxpayer will thus regard the fact that he does not have to pay tax on any capital gain as an advantage. However, that advantage is lost to him once he has concluded his investment and this has culminated in a loss. 54. In the light of the objective pursued by the fundamental freedoms, the approach taken in the judgment in K is preferable. The fundamental freedoms are intended to ensure that an operator is not deterred from carrying on cross-border activities in the internal market. For that reason, where the investment decision in question such as, in the present case, the decision to set up a subsidiary is made before the activity begins, it is also the situation at that point in time that is decisive. 55. Consequently, the fact of not taking into account an exchange rate loss incurred on the disposal of shares in a foreign company is in principle justified by the coherence of the Swedish tax legislation because an exchange rate gain would not be taxable either. Proportionality 56. However, a Member State must not, in adopting legislation that guarantees fiscal coherence, go beyond what is necessary in order to attain that objective. 57. The question here is whether the Kingdom of Sweden could not also and in a manner more advantageous to X preserve the coherence of its tax system by taking account of both exchange rate losses and exchange rate gains arising from the disposal of shares in companies in the context of the taxation of income. 58. I do not regard this alternative as a more benign way of preserving fiscal coherence, however. It would mean that a taxpayer who makes an exchange rate gain would have to pay tax on that gain. This too, however, would constitute a restriction on the freedom of establishment, assuming that X is the subject of such a restriction in the present case. 22. Cf., inter alia, judgments in Bachmann (C-204/90, EU:C:1992:35, paragraph 21), Test Claimants in the Thin Cap Group Litigation (C-524/04, EU:C:2007:161, paragraph 68) and SCA Group Holding and Others (C-39/13 to C-41/13, EU:C:2014:1758, paragraph 33). 23. See, for example, judgments in Svensson and Gustavsson (C-484/93, EU:C:1995:379, paragraph 18), ICI (C-264/96, EU:C:1998:370, paragraph 29), Rewe Zentralfinanz (C-347/04, EU:C:2007:194, paragraph 62) and SCA Group Holding and Others (C-39/13 to C-41/13, EU:C:2014:1758, paragraph 33). 24. See, for example, judgments in Deutsche Shell (C-293/06, EU:C:2008:129, paragraph 39), Presidente del Consiglio dei Ministri (C-169/08, EU:C:2009:709, paragraph 47) and Emerging Markets Series of DFA Investment Trust Company (C-190/12, EU:C:2014:249, paragraph 92). 25. Judgment in Deutsche Shell (C-293/06, EU:C:2008:129, paragraph 40). 26. Judgment in K (C-322/11, EU:C:2013:716, paragraph 69). 27. Cf. judgment in K (C-322/11, EU:C:2013:716, paragraphs 69 and 70).

7 59. A different approach would have the further consequence of depriving the Member States of the freedom to decide what to tax in the first place. Such an outcome would, in my view, be incompatible with the tax sovereignty which they exercise under the division of powers in the European Union. 60. The Swedish legislation at issue here would thus be justified by the objective of preserving fiscal coherence even if contrary to my own view the Court were to hold that a restriction on the freedom of establishment is present in this case. 2. Division of powers of taxation between the Member States 61. On the other hand, the further ground of justification cited by some of the parties to the proceedings, of preserving the division of powers of taxation between the Member States, is not capable of justifying any restriction on the freedom of establishment. 62. The division of fiscal sovereignty between Member States is not an issue in this case. It is after all beyond question that a gain arising from the disposal of a shareholding in a company resident in another Member State falls within the scope of Swedish fiscal sovereignty. However, the Kingdom of Sweden is not exercising its sovereignty in this respect. D Conclusion 63. In the light of all the foregoing, it must be concluded that the Swedish legislation at issue here does not restrict the freedom of establishment. However, even if the view were taken that the Swedish legislation does constitute a restriction, that restriction would be justified by the objective of preserving fiscal coherence. VI Conclusion 64. I therefore propose that the Court of Justice answer the question referred for a preliminary ruling by the Högsta förvaltningsdomstolen as follows: Article 49 TFEU, which is applicable in a case such as that in the main proceedings, does not preclude national legislation under which the State in which a parent company has its registered office does not grant a deduction for a currency loss incorporated into a capital loss on the disposal of a holding for business purposes in a company resident in another Member State, where the State in which the parent company has its registered office applies a system that does not take into account the capital gains and capital losses on the disposal of such holdings in the calculation of the basis of assessment for tax.